The alarming rate at which Jewish settlement building has taken up large tracts of Palestinian land over the past couple of decades has given added impetus to increasing the supply of housing in the West Bank and Gaza. But even if the tens of thousands of homes for Israeli settlers had not been built in the past few years, Palestinians would still be facing a serious housing shortage.

Demand for affordable housing is particularly acute, with 70 per cent of Palestinian households currently unable to afford average prices, according to a December 2014 report from the Office of the Quartet Representative.

Affordable housing

Until now, housing construction has not been targeted at low-to-middle-income Palestinians, but with the market characterised by oversupply at the high end and undersupply at the low end, large-scale affordable housing schemes are needed to unlock demand for homes.

If the need for more affordable homes is evident, the demand picture across Palestine is not uniform.

“In Ramallah, there’s been a couple of major projects initiated, such as [the] Rawabi [planned city] and Al-Reehan [residential neighbourhood], so the market’s saturated, although there is still a need for affordable housing because the saturation point is for houses priced $100,000 and above,” says Samir Hulileh, the CEO of Padico Holding, a local diversified group with real estate interests.

Instead, it is apartments priced in the $60,000-$70,000 range that are in scarce supply. But housing developers have not been able to find the right formula to incentivise investment in large-scale affordable housing schemes.

Cultural barrier

One reason for this is the Palestinians’ cultural preference for building for their own families, rather than buying into development projects. The concept of homes as commodities to be bought and sold has still not seeped into the traditional culture in cities such as Nablus, Bethlehem and Hebron, where housing is seen as an investment for life. With no culture of moving up the housing ladder over time, this forecloses one means of lowering costs for first-time homebuyers.

This makes for fallow conditions for large developers to get housing schemes off the ground, with concerns that oversupply could undermine project economics.

“Only in Ramallah and Gaza is there the kind of culture that allows commercial activity to build houses,” says Hulileh. “There’s no culture of buying from others, as many tend not to trust others’ quality; they prefer to do it on their own.”

Financing hurdle

Financing is also a sizeable hurdle, with banks’ requirement for a 15-20 per cent down payment proving a challenge for many families. One problem is the availability of loans and the bankability of borrowers. 

In June 2010, Palestinian Authority President Mahmoud Abbas launched a $500m mortgage finance programme intended to double the number of Palestinian families able to purchase homes by offering long-term mortgages. As part of the programme, a new company, the Affordable Mortgage and Loan Corporation (Amal), was established to oversee and administer the provision of mortgage financing. By rejuvenating the housing sector and its related industries, which together generate thousands of jobs in the Palestinian Territories, Amal aimed to spur significant economic growth.

However, mortgage take-up has not met initial expectations. The economic stranglehold does not help. “You have to have steady jobs,” says Hulileh. “High unemployment doesn’t allow for mortgages.”

Some progress

Despite this, several large-scale housing developments have got off the ground.  Some that have faced obstacles – notably Rawabi, which had to negotiate hard with the Israeli authorities over road and water access – have managed to overcome them, after many years of hard graft. 

One far from the comfort zone of Ramallah is the Palestine Investment Fund (PIF)-backed Al-Jinan integrated community near Jenin, which is composed of residential buildings and semi-independent units. In 2012, construction of two residential packages of 100 units, with an area of 14,000 square metres, was completed.

In Ramallah itself – the West Bank’s de facto capital – the $250m Al-Reehan residential neighbourhood forms part of PIF’s affordable housing national programme. The first phase of the project has been finished and several units have been delivered to residents. Upon completion, the neighbourhood will have 1,600 residential units, housing up to 8,000 residents.

Jerusalem project

Padico is, meanwhile, persevering with an ambitious scheme in Jerusalem, which falls under the remit of the Israeli authorities. Rabiyat al-Quds is to include 22 residential buildings in the Hawd al-Alami area, near Beit Safafa, 5 kilometres south from the Old City of Jerusalem.

“Jerusalem is a different story to Ramallah and the scarcity of housing and land is enormous,” says Hulileh.

Padico registered the land as far back as 2000, but has waited 15 years to get an initial permit. Now it is trying to build 240-250 apartments there. Phase 1 will include 100 units, and Hulileh hopes the rest will be added next year.

“Rabiyat al-Quds is a huge project, and prices are much higher, about four times those of Ramallah, so you’re looking at $400,000 per apartment,” says Hulileh.

Padico has an arrangement with Cairo Amman Bank, so those looking to buy at Rabiyat al-Quds will at least have the chance to obtain finance for 20 years, covering $100,000 for each flat, with the remainder to be paid in cash.

Licenses are expected to be issued in autumn 2015. Permits for the second phase are expected next year.

Business environment

Long-term, Palestinian real estate developers will be looking to build on Area C land, which is in the West Bank but controlled by Israel. Here, the high cost of land and the difficulty in obtaining permits for roads and utilities has put developers off pursuing projects.

And even if this land is made more amenable for housing schemes, developers will still have to deal with a difficult business environment.

“There’s no way you can tweak the economics, apart from concessional infusions of capital that might in the end be neutralised by higher property values. It’s a troubling equilibrium,” says Charles Shamas, senior partner at Mattin Group, a voluntary human rights partnership in Palestine.